NY Appellate Court Holds Default Letter Stating Lender “Will Proceed to Automatically Accelerate” Did Not Accelerate the Debt and Thus Did Not Trigger the Statute of Limitations

Diana M. Eng and Alina Levi

In U.S. Bank N.A. v. Gordon, 176 A.D.3d 1006 (2d Dept. 2019), the New York Appellate Division, Second Department, held that a notice of default stating that if the loan was not made current, the lender “will automatically accelerate [the] loan,” was “merely an expression of future intent” and therefore did not accelerate the borrowers’ debt. As such, the Second Department held that the notice of default did not trigger the statute of limitations.

Summary of Facts and Background

On or about November 3, 2005, Steve and Ashia Gordon (“Defendants”) executed a note (“Note”), which was secured by a mortgage (“Mortgage”) against a property in Queens, New York. On or about July 1, 2011, Defendants defaulted on the loan. As a result, America’s Servicing Co. (“ASC”) sent a letter to Defendants, dated September 21, 2008 (“Notice of Default”), advising them that the loan was in default, and that, “[u]nless the payments on your loan can be brought current by October 21, 2008, it will become necessary to accelerate your Mortgage Note and pursue the remedies provided for in your Mortgage or Deed of Trust.” Moreover, the Notice of Default warned that “failure to pay this delinquency, plus additional payments and fees that may become due, will result in the acceleration of your Mortgage Note. Once acceleration has occurred, a foreclosure action . . . may be initiated.” In addition, the Notice of Default stated that “[t]o avoid the possibility of acceleration,” Defendants were required to make certain payments by a specific time, or ASC “will proceed to automatically accelerate your loan.” (Emphasis added).

On June 29, 2017, plaintiff U.S. Bank N.A. (“U.S. Bank”) commenced a foreclosure action to enforce the Defendants’ Mortgage in the Queens County Supreme (the “Lower Court”). Defendants moved to dismiss the action pursuant to CPLR 3211(a)(5) alleging that the statute of limitations to foreclose had expired. Specifically, Defendants argued that the entire debt was accelerated on September 21, 2008, based on the Notice of Default.

The Second Department’s Decision

The Second Department analyzed the statute of limitations to foreclose and reiterated its prior holdings regarding the clear and unequivocal notice required to accelerate the debt and trigger the statute of limitations. Specifically, under New York law, an action to foreclose a mortgage is subject to a six-year statute of limitations. See CPLR 214(4). Where a mortgage provides the holder of the note and mortgage with the option to accelerate the entire debt, “some affirmative action must be taken evidencing the holder’s election to take advantage of the accelerating provision, and until such action has been taken the provision has no operation.” Further, the Second Department explained that “[a]cceleration may occur . . . when an acceleration notice that is clear and unequivocal is transmitted to the borrower by the creditor or the creditor’s servicer, or when a creditor commences an action to foreclose a mortgage and seeks, in the complaint, payment of the full balance due on the underlying note.”

In affirming the Lower Court’s decision denying Defendants’ motion to dismiss, the Second Department (i) rejected Defendants’ contention that the Notice of Default accelerated the debt and (ii) held that the “language therein was ‘merely an expression of future intent that fell short of an actual acceleration.’” As such, the Second Department concluded that Defendants failed to meet their prima facie burden of establishing that the statute of limitations to foreclose had expired. Thus, the foreclosure action was not time-barred.

Conclusion

This decision reinforces the Second Department’s prior decisions holding that “will be accelerated” language in a notice of default does not clearly and unequivocally accelerate the debt for statute of limitations purposes. As such, Gordon further highlights the current split among the New York Appellate Divisions regarding this heavily-litigated issue. Contrary to the Second, Third, and Fourth Departments, the First Department has found that the presence of “will be accelerated” language in a notice of default accelerates the entire debt, thereby triggering the six-year statute of limitations. This issue is ripe for the Court of Appeals to determine what specific language is sufficient to clearly and unequivocally accelerate the debt.

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